Los Angeles turned a profit on its last Olympics. The 2028 Games could come up short

Los Angeles pulled off a rare feat in 1984: the city turned a profit on the Summer Olympics. It’s looking like that may not be easy in 2028. And that could come at a bad time for the city.

“The city of L.A., financially, we are in trouble,” Controller Kenneth Mejia wrote in a recent letter to Mayor Karen Bass and the City Council. Less revenue and higher spending adds up to a projected $140 million shortfall for the current fiscal year, and an additional decrease of $73 million next year.

Los Angeles is “overspending” by $300 million, Meija wrote. A top city budget official recently estimated that the budget shortfall could reach $1 billion in its next fiscal year. Last week, state lawmakers requested another $1.9 billion in funding, after receiving $2.5 billion, to help with the city’s recovery efforts from the January wildfires.

LA28, the private, non-profit company organizing the 2028 Games, has a $6.9 billion budget funded by corporate sponsorships, licensing agreements, and a significant contribution from the International Olympic Committee. The budget covers expenses like renting athletic arenas, personnel costs, as well as housing athletes.

But if the Olympics budget math doesn’t add up exactly as planned, taxpayers could be left paying part of the bill, and LA and its Olympics committee are aware of the risks of overrunning cost estimates. In 2019, LA28’s budget was increased by $1.36 billion. If LA28’s budget still doesn’t prove to be enough, the City of Los Angeles will be responsible for the next $270 million in funding. After that, California’s state government will be responsible for the next $270 million — with the next $270 million after that again becoming LA’s financial burden. 

Olympics’ host cities have a long history of financial failure

If recent history is any indicator, it is fair to worry that the 2028 Summer Olympic Games will go over budget. In the last 60 years of host cities, almost none have been profitable or stayed on budget.

The 2000 Sydney Olympic Games in Australia ended up 90% over budget after spending over $5 billion. The 2004 Athens Olympic Games ended up roughly 50% over budget, at $3 billion, due to overruns and growing debt. The 2016 Summer Olympic Games cost Rio de Janeiro a reported $20 billion. The Olympics have been so unprofitable that when London broke even with the 2012 Summer Games, it was judged by some to be a success.

Miles Osgood, a professor at Stanford University and Olympics researcher, says LA’s organizers, drawing on lessons from 1984, have made responsible budget plans that position the city at a financial advantage going into the Games, compared to other recent host cities. As in 1984, LA is planning to use sites and structures that already exist, which saves on costs related to new construction. Use of existing venues is expected to save over $150 million.

But the over $200 million profit Los Angeles generated that last time it hosted the games in 1984 occurred amid circumstances much different than today. Specifically, the games are much larger in size. LA will host 36 Olympic sports in 2028, instead of 21. In 1984, there were 221 events and 6,829 athletes. In 2028, there will be 800 events with 15,000 athletes. The bigger numbers multiply related costs (e.g. security, transportation, staff, rooms at the Olympic Village) “that mushroom out of those basic figures,” Osgood said.  

Even before the wildfires introduced an unexpected financial and infrastructure challenge for LA, the city was home to significant anti-Olympics sentiment. Osgood noted that Los Angeles is central to the “NOlympics” campaign, a movement concerned with, among other things, the housing crisis and the lack of local democracy in the Games’ planning. It has sought to expose the bad deals that hosts always make when welcoming the Olympics, and the group has been vocal about the 2028 Games since the wildfires.

Despite the criticism, LA is confident that the games will be judged a success. Paul Krekorian, president of the Los Angeles City Council, recently told the New York Times, “I believe the 2028 Games will similarly benefit Los Angeles for generations to come.” 

For many residents still picking up the pieces of life in the aftermath of home losses, the typical spirit associated with playing host to the Olympics may not capture their mood in the traditional proud way. “In 2028, when entire neighborhoods may still be clearing the ashes, the Olympic Flame is not going to be a welcome symbol,” Osgood said. “You can easily imagine how LA’s Olympic slogan, ‘Follow the Sun,’ will fare, as protestors make calls, instead, to follow the money,” he added. 

The wildfires in mid-January displaced tens of thousands of California residents and over 18,000 structures were destroyed.

It is estimated that the recent wildfires will cost roughly $40 billion in insured losses.

From an infrastructure perspective, the wildfires should not be an issue. None of the 2028 Olympics venues set to host were damaged by the fires. UCLA, which has been set to serve as the Olympic Village housing athletes, emerged unscathed. Experts say that it is likely to still be the venue for many of the athletes attending the 2028 games.  

But Meija recently said that the city’s fiscal stress could not come at a worse time given the wildfires. “We’ve gone from record levels of General Fund reserves 18 months ago to the brink of needing to officially declare a ‘fiscal emergency,'” he said. “This added stress on the budget comes on top of the growing responsibilities for preparing for the Olympic and Paralympic Games in 2028.” 

While wildfires are not an uncommon occurrence in California, the scale of the destruction to homes, business, and public infrastructure is considerably higher than the LA area usually experiences, according to Matthew Burbank, a University of Utah professor who has worked extensively on Olympics urban policy.

It may take several years for Los Angeles to rebuild, but Burbank said he does not expect the wildfires to have a direct impact on Olympics’ planning, or any funds currently earmarked for the Games to be redirected from the Olympics to wildfire relief. “More likely, the city’s approach to budgeting for cost overruns would be to hope that they do not occur, and if they do, then the city will then have to figure out how to pay those costs,” he said. 

But he added that there is no denying a multi-year wildfire rebuilding effort’s overall impact on the public financial situation.

“There may be lasting impacts on state and local government budgets that will be ongoing in 2028 and beyond,” he said. 

Disclosure: CNBC parent NBCUniversal owns NBC Sports and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder to all Summer and Winter Games through 2032.